Measuring market integration in the presence of transaction costs--a threshold vector error correction approach
AbstractApplied econometric analyses of market integration based on price data alone have been criticised, because they neglect the role of transaction costs. To meet this objection threshold vector error correction models are used. Threshold models can account for the effects of transaction costs in price transmission without directly relying upon information about these costs, which are often unavailable. Results from threshold models that are based on two thresholds provide results that are economically more intuitive than those obtained from one threshold models. However there is no adequate econometric test for threshold significance in a two-threshold model available so far; such tests are only available for the one threshold model. In this paper a restricted two-threshold model is developed in which the significance of the thresholds can be tested. This model is therefore amenable to economic interpretation and statistical inference. This model is used to estimate market integration on the European pig market.
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Bibliographic InfoArticle provided by Blackwell in its journal Agricultural Economics.
Volume (Year): 31 (2004)
Issue (Month): 2-3 (December)
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Web page: http://www.blackwell-synergy.com/loi/agec
Other versions of this item:
- Meyer, Jochen, 2003. "Measuring Market Integration In The Presence Of Transaction Costs - A Threshold Vector Error Correction Approach," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25869, International Association of Agricultural Economists.
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- Nathan S. Balke & Thomas B. Fomby, 1992.
9209, Federal Reserve Bank of Dallas.
- Awudu Abdulai, 2002. "Using threshold cointegration to estimate asymmetric price transmission in the Swiss pork market," Applied Economics, Taylor and Francis Journals, vol. 34(6), pages 679-687.
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